Bonds to Relieve Shilling

Bank of Uganda is expected to auction two-year and ten-year bonds this week, which will attract more dollars into the market, and offer some brief relief to the ailing shilling.

According to James Mutuku, Standard Chartered bank’s head of financial markets, the ten-year bond might attract more money from investors because of its

higher yield. Two weeks ago, BOU raised its benchmark rate, the CBR, by a percentage point to 12 per cent to stem inflationary pressures.

Usually when the CBR is raised, it leads to a spike in the interest on commercial bank credit, and higher yields on government securities. The two bonds slated for auction this Wednesday have a combined value of Shs 180bn (about $61m).

The two-year bond was last sold on March 25 and it attracted a yield of 16.7 per cent. The 10-year bond, which was last sold on January 28, attracted a yield

of 17 per cent. The yields could even be higher this time round as the shilling firmly settles into the 3,000 range against the dollar.

At the opening of trading on Friday, the central bank quoted the shilling at Shs 3,0033,013, one of the lowest levels the shilling has traded in recent times, although that was in the ranges analysts had earlier predicted. It closed a little bit ger at Shs 2,9973,007.

“We expect the shilling to remain unchanged in the coming week as demand matches supply in the market,” says Mutuku.

The Electricity Regulatory Authority recently announced an increase in power tariffs for the second quarter of the calendar year, arguing that a weak currency was partly responsible for the hike. The tariff for domestic consumers went up by 2.5 per cent to Shs 544.9.

The shilling has so far depreciated by seven per cent this year alone. In neighbouring Kenya, the local currency fell to levels last seen in 2011, trading at Shs 93.4050 against the dollar.

Source : The Observer

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